The IEA reports that we are losing oil production capacity at a rate of 6% to 8% a year and will continue to do so unless the equivalent of six new Saudi Arabia’s are found.

This technology will be very interesting to watch:

Ceramatec says its new generation of battery would deliver a continuous flow of 5 kilowatts of electricity over four hours, with 3,650 daily discharge/recharge cycles over 10 years. With the batteries expected to sell in the neighborhood of $2,000, that translates to less than 3 cents per kilowatt hour over the battery’s life. Conventional power from the grid typically costs in the neighborhood of 8 cents per kilowatt hour.

New battery could change world, one house at a time

Ceramatec

In a modest building on the west side of Salt Lake City, a team of specialists in advanced materials and electrochemistry has produced what could be the single most important breakthrough for clean, alternative energy since Socrates first noted solar heating 2,400 years ago.

The prize is the culmination of 10 years of research and testing — a new generation of deep-storage battery that’s small enough, and safe enough, to sit in your basement and power your home.

It promises to nudge the world to a paradigm shift as big as the switch from centralized mainframe computers in the 1980s to personal laptops. But this time the mainframe is America’s antiquated electrical grid; and the switch is to personal power stations in millions of individual homes.

Former energy secretary Bill Richardson once disparaged the U.S. electrical grid as “third world,” and he was painfully close to the mark. It’s an inefficient, aging relic of a century-old approach to energy and a weak link in national security in an age of terrorism.

Taking a load off the grid through electricity production and storage at home would extend the life of the system and avoid the expenditure of tens, or even hundreds, of billions to make it “smart.”

The battery breakthrough comes from a Salt Lake company called Ceramatec, the R&D arm of CoorsTek, a world leader in advanced materials and electrochemical devices. It promises to reduce dependence on the dinosaur by hooking up with the latest generation of personalized power plants that draw from the sun.

Solar energy has been around, of course, but it’s been prohibitively expensive. Now the cost is tumbling, driven by new thin-film chemistry and manufacturing techniques. Leaders in the field include companies like Arizona-based First Solar, which can paint solar cells onto glass; and Konarka, an upstart that purchased a defunct Polaroid film factory in New Bedford, Mass., and now plans to print cells onto rolls of flexible plastic.

The convergence of these two key technologies — solar power and deep-storage batteries — has profound implications for oil-strapped America.

“These batteries switch the whole dialogue to renewables,” said Daniel Nocera, a noted chemist and professor of energy at the Massachusetts Institute of Technology who sits on Ceramatec’s science advisory board. “They will turn us away from dumb technology, circa 1900 — a 110-year-old approach — and turn us forward.”

Why not just upgrade to a so-called “smart grid” as President Obama has proposed in his economic stimulus package? There are complications, Nocera said.

“First you have to rebuild the grid because the one we have now is a creaky machine from the 1920s, and we keep trying to retrofit it,” he said. “Then you’re going to have computers trying to manage the energy, which brings up issues like security. You have to make it really secure so you don’t have people hacking into things. And then politics. Just wait until you try to run power lines through someone’s backyard.

“I can’t imagine anything more secure than generating my own energy with the sun at my house, and now I’ll have a way to store it. It’s the ultimate in security, and the ultimate in control.”

With small-scale electrical generation taking place at millions of individual homes — as opposed to today’s large-scale power generation from a handful of giant power plants — there would be less worry about what’s called “point failure” on the grid. That’s when a single component gets knocked out and shuts off power to a whole region. California-style rolling blackouts would be history.

The threat of terrorism has heightened the worry. But wide distribution of batteries in homes would virtually eliminate it.

***

Inside Ceramatec’s wonder battery is a chunk of solid sodium metal mated to a sulphur compound by an extraordinary, paper-thin ceramic membrane. The membrane conducts ions — electrically charged particles — back and forth to generate a current. The company calculates that the battery will cram 20 to 40 kilowatt hours of energy into a package about the size of a refrigerator, and operate below 90 degrees C.

This may not startle you, but it should. It’s amazing. The most energy-dense batteries available today are huge bottles of super-hot molten sodium, swirling around at 600 degrees or so. At that temperature the material is highly conductive of electricity but it’s both toxic and corrosive. You wouldn’t want your kids around one of these.

The essence of Ceramatec’s breakthrough is that high energy density (a lot of juice) can be achieved safely at normal temperatures and with solid components, not hot liquid.

Ceramatec says its new generation of battery would deliver a continuous flow of 5 kilowatts of electricity over four hours, with 3,650 daily discharge/recharge cycles over 10 years. With the batteries expected to sell in the neighborhood of $2,000, that translates to less than 3 cents per kilowatt hour over the battery’s life. Conventional power from the grid typically costs in the neighborhood of 8 cents per kilowatt hour.

Re-read that last paragraph and let the information really sink in. Five kilowatts over four hours — how much is that? Imagine your trash compactor, food processor, vacuum cleaner, stereo, sewing machine, one surface unit of an electric range and thirty-three 60-watt light bulbs all running nonstop for four hours each day before the house battery runs out. That’s a pretty exciting place to live.

And then you recharge. With a projected 3,650 discharge/recharge cycles — one per day for a decade — you leave the next-best battery in the dust. Deep-cycling lead/acid batteries like the ones used in RVs are only good for a few hundred cycles, so they’re kaput in a year or so.

How do you recharge? By tapping your solar panels or windmills. It’s just like plugging in your cell phone or iPod, only you plug in your house.

A small three-bedroom home in Provo might average, say, 18 kWh of electric consumption per day in the summer — that’s 1,000 watts for 18 hours. A much larger home, say five bedrooms in the Grandview area, might average 80 kWh, according to Provo Power.;Either way, a supplement of 20 to 40 kWh per day is substantial. If you could produce that much power in a day — for example through solar cells on the roof — your power bills would plummet.

Ceramatec’s battery breakthrough now makes that possible.

Clyde Shepherd of Alpine is floored by the prospect. He recently installed the second of two windmills on his property that are each rated at 2.4 kilowatts continuous output. He’s searching for a battery system that can capture and store some of that for later use when it’s calm outside, but he hasn’t found a good solution.

“This changes the whole scope of things and would have a major impact on what we’re trying to do,” Shepherd said. “Something that would provide 20 kilowatts would put us near 100 percent of what we would need to be completely independent. It would save literally thousands of dollars a year.”

Shepherd is connected to the grid through Rocky Mountain Power, which charges a variable rate for power depending on demand during a given 24-hour period. With his windmill setup, Shepherd has what’s called “net metering” — an electric meter that spins both ways. He pays for electricity coming in, but gets a credit from Rocky Mountain for any excess power generated by his windmills that flows back onto the grid. Already, he’s cut his power bills in half, and with good storage batteries he thinks he could reduce the bill to zero.

While Shepherd opted for windmills over solar at the time he was planning his alternative energy installation, he said he would reconsider that decision today as the bottom continues to fall out of the cost of solar cells.

“Batteries and PV are about to merge,” said MIT’s Nocera, using the shorthand for “photovoltaics” or solar power. “First Solar is now saying that it takes $1 a peak watt to manufacture, and another 80 cents for installation. So they’re saying that you can get PV for under $2 a watt. That’s a reduction of cost by a factor of four. Only a few years ago, it was $8. If CoorsTek and Ceramatec come up with a good battery, the market will develop quickly.”

The long-term impact of home electric generation for a power company’s business model could be huge. After all, you can’t stay in business if nobody’s paying for power. Exactly how that will play out remains to be seen.

***

Fifty miles south of Ceramatec’s laboratories, Chris Cannon, the former congressman from Utah County, is on a crusade to transform the world through technology. He currently sits on Ceramatec’s advisory board with Nocera. No longer burdened by the pressures of Washington, he’s using his experience in energy, manufacturing and government to carry the message of innovation and help move research to reality.

“What I choose to concentrate on now are things that will make the world a better place,” Cannon said, “and Utah is an incredibly good place to do that.”

Approached by Ceramatec after he left Congress, Cannon fills a complementary role in a group of smart engineers and academic types. With extensive Washington contacts and an understanding of the inner workings of power generation, he hopes to be able to make connections that will push the new battery technology forward for the benefit of the country.

“I have an energy and manufacturing background, so I understand the process,” he said. “Ceramatec had a gap in their experience which I think I filled pretty well.” On top of that, there was “good chemistry” from the start.

While Cannon’s six terms in Congress representing what is arguably the most conservative district in America means keeping a somewhat jaundiced eye on the Obama administration, he’s far from negative. He thinks of himself as a “post-partisan Republican” willing to run with good ideas regardless of their source. And when it comes to energy policy, he’s anything but discouraged.

“If you look at the president, he inherited some really difficult things,” Cannon said. “But he hired a guy to be the secretary of energy who is a scientist. And we are on the verge of so many scientific breakthroughs that no matter what the president’s ideology is, if we do the right thing scientifically, America is going to do well. Many of the innovations that are coming out of Utah that I’m involved with are likely to be really important, regardless of the leadership.”

Last month, Obama introduced a raft of broad energy proposals that were sharply criticized by conservatives as economic back-breakers. Proponents hailed the plans as progressive. Either way the administration appears to be on a path that could soon drive the cost of conventional energy higher — some say as much as double. Electrical generation at home using solar panels, coupled with storage in effective batteries, could soften the financial impact on many homeowners’ utility costs.

The new Ceramatec battery could also change the way private enterprises invest in energy, Cannon said. Instead of building another power plant, for example, maybe they buy 100,000 or a million batteries and distribute those around the service area of a utility to reduce loads and eliminate expensive “spinning reserve,” the supplementary power generation that’s fired up in response to daily spikes in electric demand.

“The technology could mean a lot of things,” Cannon said, “but it certainly means that we change the way we invest. It also means that we shift our expenditures on terrorism, because our infrastructure for power transmission is probably the weakest link in America today. If you have local batteries with local control, that gives terrorists a more difficult target. And local control systems are much simpler than a vast national transmission grid.”

***

CoorsTek’s manufacturing roots go back to the early 20th century, when Adolph Coors diversified his beer brewing empire based in Golden, Colo. He set up a ceramic manufacturing business called the Herold China and Pottery Company, whose early product line included dinnerware and utensils but later moved to high-tech industrial products made of ceramics. With World Wars I and II, the company stepped up to provide needed ceramics for industry and the military, including materials used in the production of the atom bomb.

“To most Americans, the word ‘Coors’ means beer,” wrote Business Wire on the ceramic maker’s 75th birthday. “But to scientists and industrialists throughout the world, the word ‘Coors’ means technical ceramics of extraordinary quality.”

That hasn’t changed. Cellular telephones, car engines, computer chips, soda dispensers, semiconductor casings, blood processing pumps, bulletproof vests and armor for military vehicles, to name just a few items in a dizzying high-tech product array, all use ceramic components produced by Coors enterprises. And so it was natural in 2008 for CoorsTek to purchase the hottest ceramics R&D firm going — Ceramatec, with its 165 employees in Salt Lake City.

Ceramatec was founded in 1976 by a group of University of Utah professors who made important contributions to the sodium-sulphur battery technology being pursued by Ford Motor Company for vehicles at the time. Those early liquid-core batteries didn’t pan out well for transportation, though, because of their size and weight, and because of the extremely harsh internal chemical conditions required for them to work.

In the years since, electric cars have remained on the sexy-tech list, with substantial industry efforts aimed at developing various flavors of zippy batteries to power them. Ceramatec had other ideas, recognizing a vast potential market for a different sort of power — for homes.

“With a house, you don’t need to get energy in and out instantaneously. You need huge amounts of storage capacity,” says MIT’s Nocera. “That suggests a different commercial market and different technical restraints and opportunities.”

***

In 2000 Ashok Joshi, a native of India, took the helm at Ceramatec. His international reputation in ion technology and fuel cells kept the company among the first rank of innovators.

Joshi (he prefers A.J.) looked to the potent combination of sodium and sulphur for the basic components of a new battery. That was known chemistry. But while he wanted to achieve a high energy density offered by those elements, he also wanted to get rid of the extreme heat, corrosion and toxicity of liquid sodium batteries.

The key would be found in a paper-thin, yet strong and highly conductive, electrolyte material — an advanced ceramic — to serve as the barrier between the battery’s sodium and sulphur. The thinner the barrier, the cooler the battery can operate. If you can get below the melting point of 98 C, sodium stays in its solid state, and you’ve got enough energy to run a house with safety.

Charged particles of sodium and sulphur — ions — now scoot so effortlessly through the new ceramic wafer that the sodium doesn’t even approach 98 C, let alone 350.

The ceramic that made this possible was dubbed NaSICON by chemists. That stands for “sodium super ion conductor” — “Na” being the code name for sodium in chemistry’s periodic table.

Ceramatec’s formulation is a trade secret. With trademark modesty, A.J. observes, “We feel confident it’s a good material.”

“It’s a miracle material,” corrects Grover Coors. He’s the great-grandson of Adolph Coors, the brewmaster-industrialist who started all this. Grover has a Ph.D and specializes in solid-state ionics and advanced materials. He’s working with Ceramatec as a sort of research fellow to evaluate technologies and advise senior management. A.J. stayed on as president after the sale to CoorsTek.

“There are two classes of ceramic materials that are good conductors,” Coors explained. “One is what developed here in the early days — beta-alumina solid electrolyte, or BASE. It’s temperamental, brittle. A.J. thought of a better material. It’s a better conductor, easier to manipulate and process, and lower cost.”

This is where the earth moves for renewable energy. The new electrolyte enables the development of an energy-dense, inexpensive and safe storage battery for use at home. Combined with the rapidly emerging thin-film solar cells, it presents an unparalleled business opportunity.

***

Grover’s brother, John K. Coors, is CEO of CoorsTek, the manufacturing company that applies what the scientists at Ceramatec dream up. Their nephew, Doug Coors, oversees R&D.

With some 21 plants producing advanced ceramic products worldwide, the expectation is that full-scale production of ceramic sheets for the new batteries could be tooled up in short order. In fact, only a handful of CoorsTek facilities would likely be employed.

The order of magnitude pencils out along these lines: a target of 20 gigawatt hours of storage in 20 kilowatt-hour battery increments equals 1 million batteries. Or using a different metric, 1 million square meters of thin ceramic electrolyte would yield 20 gigawatt hours of batteries, equal to California’s entire spinning reserve.

Nobody at CoorsTek even blinks at such figures. The company already produces 3 million pounds of ceramic material per month. “Once we have a working prototype battery with all the standards and cost requirements met, it will come up quickly,” said Grover Coors. “It would scare people to know how quickly we can bring this up.”

They’re about about six months away from initial scale-up toward a commercial product, he said.

Lots of sodium will be needed to make the new batteries, and Ceramatec proposes a symbiotic relationship with the federal government to get it. Enormous quantities of sodium metals, the byproducts of nuclear weapons manufacturing, just happen be available for cleanup at Hanford nuclear reservation near Richland, Wash. It’s a ready-made source of material that CoorsTek can recycle.

***

In a laboratory at Ceramatec, a small battery — a NaSICON sandwich in silver foil — has been cycling up and down since October to prove out the electrochemistry. Engineers are confident the tests will support a projected useful life of 3,650 cycles, which meet the standard of one discharge/recharge cycle per day for 10 years. It’s a tall challenge, according to Coors, but doable. “It’s very efficient in terms of watt-hours per kilogram,” he said. “We’re now in excess of 200, which puts us in the sweet spot for all the applications we’ve been talking about.”

There are a handful of small hurdles yet to cross in the science, but nobody seems terribly concerned. One is the fact that when two solids are joined along flat surfaces, there will always be at least a 1-micron gap between them. That needs to be closed somehow. Nocera is making some suggestions for suitable fillers, but neither he nor Ceramatec developmental scientist John Watkins feel that the problem will be a difficult one.

“I want to say, this is no big deal,” Nocera said. “But sometimes little things can bite you in the butt. So we’ll just work it out.”

***

Meanwhile, heavyweight liquid sodium-sulphur batteries from Japan are making an inroad into the United States at Luverne, Minn. They’re part of a demonstration project by Xcel Energy, an eight-state power utility. In February, Xcel began testing a 1-megawatt battery installation intended to capture power from a giant 11-megawatt wind farm owned by Minwind Energy, LLC. It’s said to be the first attempt to store wind-generated power at a large-scale.

Contrasting with Ceramatec’s vision of many small home-based power centers with refrigerator-size batteries, this project is another mainframe — albeit fueled by wind. Hot liquid sodium-sulphur batteries from NGK are intended to move a lot of energy to the grid. The 50-kilowatt battery modules — 20 cylindrical cells — are roughly the size of two semi-trailers and weigh 80 tons. They’ll store about 7.2 megawatt hours of electricity, enough to power 500 homes for seven hours, according to company data. The test is intended to validate greater penetration of wind energy on the Xcel Energy system.

It’s one of many efforts by industry to cut down carbon dioxide emissions and move to a more sustainable energy model, but it’s not without hurdles.

“One of the big problems with the NGK system is that it’s megawatt-scale storage,” said Ceramatec’s Coors. “It has to be on top of the 10 kilowatt side of the utility transformer, meaning that there’s a lot of step-down transformers and whatnot involved in hooking those things up — a lot more system complication.

“If you go with a smaller system like the 5 kilowatts for four hours system that we’re contemplating, that’s all done on the 110-volt side of the transformer, and so all the switching can be done with solid-state relays very inexpensively.”

Such comparisons are batted around frequently by Ceramatec insiders as they seek to optimize the science and develop business models. A recent Sunday dinner with several board members was a popcorn machine of problem-solving and technical musings.

Over dessert, Cannon suggested a new angle: Was it possible to use the thin ceramic membrane developed at Ceramatec to reduce the production costs and improve efficiency of NGK’s existing hot liquid batteries — replacing the old beta-alumina electrolyte currently used in those devices? After all, the new ceramic membrane is cheaper and a better conductor. That got Nocera’s attention, and the idea then bounced to A.J., whose mental wheels were rolling.

The exchange was typical of the collegial atmosphere and dynamic thinking processes that characterize Ceramatec.

***

Joe Hunter envisions applications for a new generation of batteries in his specialty of hydroelectric power — not massive banks of batteries at dam sites, but maybe something along the lines of the 1 megawatt battery array at Minwind’s Minnesota wind farm. Alternatively, many small batteries could be distributed throughout a community.

Hunter is a former deputy assistant secretary in the Department of the Interior and was Cannon’s chief of staff.

In Hunter’s world, large dams typically don’t employ batteries on-site because the torrent of juice a hydroelectric plant generates is overwhelming. Glen Canyon Dam, for example, produces close to 1,000 megawatts, which is comparable to a big coal-fired power plant. In eastern Utah, Flaming Gorge churns out 150 megawatts.

The advantage of a dam over a wind farm, however, is predictability. Water must be released continuously to support fisheries and other environmental systems downstream. That’s essentially wasted power. If small energy generation and battery storage could piggyback on such flows, the community could benefit at low cost. Inexpensive batteries could be used economically in areas serviced by many dams, Hunter suggested.

Take Deer Creek at the head of Provo Canyon, for instance. Generators at the dam can produce up to 5 megawatts, but they run mainly in the irrigation season. But water to sustain the Provo River has to be released all the time, and local residences, with batteries trickle-charging continuously, could benefit.

It’s another value proposition added to others, like the net metering enjoyed by the Shepherds in Alpine. The idea in all this is to ease pressure on the grid while moving people toward greater energy independence.

“What we’re talking about is the ability to take the edges off,” Hunter said. “We’re at a tipping point for alternative energy.”

In Salt Lake City, Grover Coors agrees: “This will be the largest industry of all time,” he said. “But it’s all about cost and reliability.”

Original Article

Its happening.

Media needs to spin another excuse.

China - energy and minerals

China May Boost Energy, Mining Acquisitions by Half

Aug. 14 (Bloomberg) — China, unfazed by failures to invest in Rio Tinto Group and Unocal Corp., will boost spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after commodity prices slumped.

State-owned Yanzhou Coal Mining Co. yesterday agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia.

China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push Chinese purchases of overseas commodity assets to $43 billion this year, a 48 percent increase on 2008, according to data compiled by Bloomberg.

“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper,” Jim Rogers, chairman of Rogers Holdings and the author of books including “Investment Biker” and “Adventure Capitalist”, said in a telephone interview yesterday. “There’s a crisis coming. They are going around the world buying up what they can. They’re preparing for a rainy day.”

Bids for resources by China, whose $2.1 trillion in currency reserves are the world’s largest, have been met with opposition in the U.S. and Australia. Neither concern over its growing influence nor the arrest of four Rio executives in Shanghai have stopped Chinese companies from buying assets abroad as the nation’s 4 trillion yuan ($585 billion) economic stimulus spurs demand.

‘Bolder Deals’

“China will see larger and bolder deals,” said Brian Gu, the Hong Kong-based head of mergers and acquisitions for greater China at JPMorgan Chase & Co., the third-ranked adviser by transaction value this year. “The growing outbound mergers and acquisitions activity is going to be a long-term trend and the volume and activity are here to stay.”

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year, the biggest annual decline since at least 1957. The measure has gained 15 percent this year on signs that the recession may be ending.

Chinese energy companies have spent at least $13 billion on overseas assets since December as they take advantage of lower valuations caused by the slowdown.

Yanzhou, China’s fourth-biggest coal miner, is offering A$18 a share for Felix, including a dividend and stock in a spin off of a unit of the Australian company.

‘Inferior’ Offer

The offer, recommended by Felix’s board, is “inferior” and shareholders should reject it, Sophie Spartalis, an analyst with Macquarie Group Ltd., said in a report today. A bid of between A$23 to A$25 a share would be “more reasonable,” she wrote.

Felix rose 4.1 percent to A$17.60 in Sydney trading. Yanzhou climbed 2.3 percent in Hong Kong to HK$12.40 while its Shanghai shares rose 3.7 percent to 20.72 yuan.

The state-owned parents of PetroChina Co., China Petroleum & Chemical Corp. and Cnooc Ltd. are studying investments in companies in Africa, Latin America, the Middle East and Central Asia, according to JPMorgan’s Gu and Mike Arruda, a lawyer at Jones Day in Hong Kong who advises on mergers and acquisitions in the oil and gas industry. Both declined to disclose details of deals they are advising on.

Controlling Stake

China National Petroleum, the parent of PetroChina and the nation’s biggest oil company, is considering offering $13 billion to $14.5 billion for a controlling stake in Repsol’s unit, three people familiar with the matter said last month.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for C$8.3 billion ($7.6 billion) in China’s biggest overseas takeover to date.

Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions,” said Arruda, who is advising on what he described as “significant” acquisitions. “These deals seem to reflect an appetite we have not seen before.”

China bought record volumes of oil and iron ore in July, according to customs figures released Aug. 11.

The world’s fastest-growing major economy consumes more than a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and accounts for more than half of trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina, according to government data.

Demand, Imports

China’s oil consumption doubled in the last decade, rising to 8 million barrels a day last year from 4.2 million barrels in 1998, according to BP Plc’s Statistical Review. The world’s third-largest economy imported 3.6 million barrels of oil a day last year, meeting about 45 percent of its needs.

China’s increasing reliance on imported crude means the scale of acquisition deals has to increase, said Paul Ting, president of New Jersey-based Paul Ting Energy Vision LLC, a consulting company specializing in Chinese oil and gas markets.

The country’s crude needs may rise to more than 11 million barrels a day in five years with China’s ageing oilfields unable to produce the extra capacity needed, Ting said.

China National Petroleum said on May 13 it wants overseas crude production to match domestic output by 2020. Chairman Jiang Jiemin said CNPC produces less than 8 percent of its oil overseas and foreign acquisitions and ventures must be increased. “We want overseas production to contribute half,” he said at the time.

Australian Opposition

Bids for resources by China have been met with opposition from lawmakers in Australia.

Melbourne-based Rio, the world’s third-largest mining company, abandoned a tie-up with Aluminum Corp. of China, or Chinalco, in June. The arrest of four Rio executives in July has strained relations between the countries. They were formally arrested on charges of trade secrets infringement and bribery, China’s Supreme People’s Procuratorate said Aug. 11, according to a Xinhua report.

Some 57 percent of Australians said Chinese mining investments should be resisted because the nation’s interests would be “better served” with local ownership, according to a poll of 890 people conducted by Essential Research in April.

Opposition to Chinese investment helped block Cnooc’s $18.5 billion bid for Unocal in 2005 while Haier Group Corp. lost out in the race to acquire U.S. appliance maker Maytag Corp. in the same year.

Unocal, Repsol

Cnooc, 66 percent-controlled by state-owned China National Offshore Oil Corp., abandoned its cash offer for Unocal after being outmaneuvered by Chevron Corp, the second-largest U.S. oil company. Chevron purchased the El Segundo, California-based oil and gas producer for $17.8 billion amid political opposition to the Chinese approach in Washington.

CNPC’s approach for Repsol’s Argentine unit is unlikely to face such obstacles from Spain, according to Nitin Sharma, an analyst at JPMorgan Cazenove Ltd. in London.

“We do not believe that the Spanish government will veto Repsol YPF plans to divest a controlling stake in YPF,” Sharma wrote in a report last month.

Original Article

They are fully aware that inflation is going to send prices of real goods through the roof, and we are heading into a long and strong bull market in tangible assets.

Yanzhou close to Australian coal deal

By Peter Smith in Sydney

Published: August 10 2009 07:47 | Last updated: August 10 2009 18:37

China’s Yanzhou Coal Mining is in advanced talks to buy Felix Resources in a cash takeover that is expected to value the Australian coal mining group at about A$3.7bn (US$3.1bn).

If the deal is agreed and cleared by regulators, it would be one of China’s largest foreign takeovers and the country’s biggest Australian deal to date.

Felix on Monday requested that its shares be suspended from trading pending the outcome of “negotiations regarding a potential change of control transaction”.

The shares, which had traded at less than A$5 this year, last traded at A$16.90. However, the Chinese group was understood to have pitched its offer at about A$19 a share, a person close to the situation said.

At that level, Felix would be worth A$3.7bn.

Reports in Australia of a bid closer to A$22 a share were wide of the mark, the person said, adding that a deal could be announced this week provided it did not hit last-minute hurdles.

Yanzhou has been interested in Felix since 2008. However, early talks broke down as the financial crisis deepened and commodity prices collapsed.

However, a rebound in commodity markets has led to a rerating in coal miners’ share prices, which have also been helped by an upturn in mergers and acquisitions activity.

Noble, the Hong Kong-based commodity supplier, this year won control of Australia’s Gloucester Coal when it agreed to pay A$460m for the 43 per cent of shares it did not already own.

Peabody Energy, the US coal miner, has recently made bullish comments about demand from India for thermal coal.

Yanzhou’s interest in Felix highlights China’s strategic interest in Australian resources.

A $19.5bn investment by Chinalco into Rio Tinto collapsed in June when the Anglo-Australian miner abandoned talks. Yet, approaches by other Chinese groups for Australian assets have been more successful.

Oz Minerals accepted an offer from Minmetals in June to purchase the company’s mining assets after the Chinese group raised its offer in a pre-emptive move to head off opposition.

Australia’s coal mining sector has attracted a number of other international companies, including Switzerland-based Xstrata, which bought Jubilee Mines for A$3.1bn in February 2008, while Luxembourg’s ArcelorMittal acquired 19.9 per cent of Macarthur Coal.

Felix is a coal mining and exploration company with projects in Queensland and New South Wales. It produces high-grade semi-soft coking and ­thermal coals.

Felix owns 15.4 per cent of the Newcastle Coal Infrastructure Group’s new terminal in the port city of the same name, which is one of the world’s biggest coal export terminals.

Yanzhou, which had its shares suspended in Hong Kong on Monday, could not be reached for comment.

Original Article

Why is this an issue? Because we have front row seats to round 5 of the death spiral of the dollar.

Depegging from the dollar and then choosing to take payment for oil in non-dollar currencies will be a one-two punch for the worlds ailing reserve currency the US Dollar. By de-pegging, it signals a lack of confidence in the good ‘ole US Dollar. And a lack of confidence not from just anyone, but one of the Dollars biggest customers. If the US Dollar were a product (which it is), and the US were a corporation, we just lost our second biggest customer. The effect? The world is not likely to ‘not notice’ this. OPEC is a massive consumer of USD, as we pay for oil in Dollars, and have for many years. As the world notices that some of the USD’s largest customers have decided to move on, so will the rest of the world. Result? Continued lack of demand for the USD, and continued devaluation.

JEDDAH/ABU DHABI (Reuters) – Former Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall “significantly” were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.

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The pegs restrict the Gulf’s ability to fight inflation by forcing them to shadow U.S. monetary policy at a time when the Fed is cutting rates to ward off recession and Gulf economies are surging on a near five-fold jump in oil prices since 2002.

Rifts are growing across the world’s top oil-exporting region on how to tackle inflation which hit a 27-year peak of 7 percent in Saudi Arabia in January and a 19-year peak of 9.3 percent in the United Arab Emirates in 2006, the most recent figure.

“In the short term free floating … will not fully dissipate inflationary pressure, although it would significantly do so,” Greenspan told an investment conference in Jeddah, Saudi Arabia’s second-largest city.

Our incessant printing of money surely hasn’t helped the matter either. We have in fact injected so much money into the worlds currency flows, that China doesn’t even want it any more. The chart below shows M3, which tracks the amount of currency in circulation.

“Against a backdrop of inflation, high oil prices and low interest rates the debate over currency reform has to take on greater urgency,” he said.

Floating the Saudi riyal would not be appropriate for an economy that relies on oil exports, Saudi Central Bank Governor Hamad Saud al-Sayyari told Arabiya Television in response to Greenspan’s suggestion.

“Floating is beneficial when the economy and exports are diverse … as for the kingdom it remains reliant on the export of a single commodity,” Sayyari said.

Dollar pegs were helping Gulf states attract foreign investments, UAE Central Bank Governor Sultan Nasser al-Suweidi added during a speech in the UAE capital, Abu Dhabi.

“They did very well for our economies because it has led to more capital flows,” Suweidi said on Monday.

Still, “Gulf governments should consider the implication of such a move in the long term,” Greenspan said of the idea of floating their currencies.

QATAR’S CALL

Qatar, contending with the region’s highest inflation, is studying revaluing its riyal among options to combat inflation that hit 13.74 percent in the fourth quarter, Sheikh Hamad bin Jassim bin Jabr al-Thani told Reuters late on Saturday.

The exchange rate contributes to about 40 percent of inflation in Qatar, where the riyal is 30 percent undervalued, Hamad said.

“We prefer always to act with all the GCC countries,” Sheikh Hamad, whose country currently chairs the six nation-Gulf Cooperation Council, said.

“It’s now time for the Gulf to have its own currency,” he said, adding the Gulf currency should be “like the Japanese yen or other currencies.”

Both Qatar and the UAE would likely sever their links to the U.S. dollar this year and track currency baskets as Kuwait did last May, Deutsche Bank said last month.

Divergence in Gulf monetary policy widened last May when Kuwait broke ranks with its neighbors by severing its link to the dollar in favor of a basket of currencies, saying a weak dollar was driving imported inflation.

Oman has said it will not join a single currency at all, and Suweidi said in November he was under mounting social and economic pressure to drop the peg.

He has since backtracked, mirroring the position of Saudi Arabia, which has in the last month introduced public sector wage increases, welfare payments and subsidies to offset the impact of inflation.

Inflation in the UAE last year likely rose to 10.9 percent, National Bank of Abu Dhabi said on Sunday.

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From Mish’s Blog:

Dubai in 1990

The same street in 2003

Dubai 2007

Dubai is said to currently have 15-25% of all the world’s cranes.

The Dubai Waterfront.

When completed it will become the largest waterfront development in the world.
All of this was built in the last 5 years.

The Palm Islands in Dubai

New Dutch dredging technology was used to create these massive man made islands. They are the largest artificial islands in the world and can be seen from space. Three of these Palms will be made with the last one being the largest of them all.

The Palm Islands in Dubai

Upon completion, the resort will have 2,000 villas, 40 luxury hotels, shopping centers, movie theaters, and many other facilities. It is expected to support a population of approximately 500,000 people. It is advertised as being visible from the moon.

The Palm Islands in Dubai

The World Islands

300 artificially created islands in the shape of the world.
Each island will have an estimated cost of $25-30 million.

The Al-Arab hotel in Dubai

The worlds tallest hotel. Considered the only ‘7 star’ hotel and the most luxurious hotel in the world. It stands on an artificial island in the sea.

Hydropolis, the world’s first underwater hotel

Entirely built in Germany and then assembled inDubai, it is scheduled to be completed by 2009 after many delays.

The Burj Dubai

Construction began in 2005 and is expected to be complete by 2008. At an estimated height of over 800 meters, it will easily be world’s tallest building when finished. It will be almost 40% taller than the the current tallest building, the Yaipei 101.

Downtown Dubai rendition 2008-2009

More than 140 stories of the Burj Dubai have already been completed. It is already the worlds tallest man made structure and it is still not scheduled to be completed for at least another year.

The Al Burj

This will be the centerpiece of the Dubai Waterfront. Once completed it will take over the title of the tallest structure in the world from the Burj Dubai.

The Burj al Alam or The World Tower

Upon completion it will rank as the world’s highest hotel. It is expected to be finished by 2009. At 480 meters it will only be 28 meters shorter than the Taipei 101.

The Trump International Hotel & Tower

The Trump Tower will be the centerpiece of one of the palm islands, The Palm Jumeirah.

Dubailand

Currently, the largest amusement park collection in the world is Walt Disney World Resort in Orlando, which is also the largest single-site employer in the United states with 58,000 employees. Dubailand will be twice the size. Dubailand will be built on 3 billion square feet (107 miles) at an estimated $20 billion price tag. The site will include a purported 45 mega projects and 200 hundred other smaller projects.

Dubailand Rendition

Dubailand Site Location

Dubai Sports City

A huge collection of sports arenas located in Dubailand.

Currently, the Walt Disney World Resort is the #1 tourist destination in the world. Once fully completed, Dubailand will easily take over that title since it is expected to attract 200,000 visitors daily.

The Dubai Marina

The marina is an entirely man made development that will contain over 200 highrise buildings when finished. It will be home to some of the tallest residential structures in the world. The completed first phase of the project is shown.

Most of the other high rise buildings will be finished by 2009-2010. The Dubai Mall will be the largest shopping mall in the world with over 9 million square feet of shopping and around 1000 stores.

Ski Dubai

Ski Dubai already open, is the largest indoor skiing facility in the world. This is a rendered image of another future indoor skiing facility that is being planned.

Some of the tallest buildings in the world, such as Ocean Heights and The Princess Tower, which will be the largest residential building in the world at over a 100 stories, will line the DubaiMarina.

Other Facilities (Not Shown)

The UAE Spaceport would be the first spaceport in the world if construction ever gets under way.

The Dubai Metro system will become the largest fully automated rail system in the world.

The Dubai World Central International Airport will become the largest airport in size when it is completed. It will also eventually become the busiest airport in the world, based on passenger volume.

There are more construction workers in Dubai than there are actual citizens.

Disclaimers and Credits

This amazing set of images came from a reputable source. It is impossible to know if any have been doctored in Photoshop but a check on Snopes shows these are likely to be the real deal. Obviously some are artists renditions.

Snopes Check

Ski Dubai Snopes

Infinity Tower Snopes

Solid Silver Car Snopes

Not solid silver but it sure looks like it.

Sky Tennis Snopes

Andre Agassi plays sky tennis

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TEHRAN, Iran: Iran established its first oil products bourse Sunday in a free trade zone on the Persian Gulf Island of Kish, the country’s oil ministry said.

A statement posted on the ministry’s Web site said 100 tons of polyethylene consignment was traded at the market’s opening on the island, which houses the offices of about 100 Iranian and foreign oil companies.

Oil and petrochemical products will be traded in Iranian Rials, as well as all other hard currencies, the statement quoted Iranian Oil Minister Gholam Hossein Nozari as saying. About 20 brokers are already active in the market, it said.

“The bourse provides an economic opportunity for Iranians, other countries and foreign customers,” Nozari was quoted as saying.

Iran produces more than 20 million tons of petrochemical products per year.
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Iran has already registered for another oil bourse, in which it has said it hopes to trade oil in Euros instead of dollars, to reduce any American influence over the Islamic Republic’s economy.

A bourse official, Mahdi Karbasian, told the IRNA official news agency that such an oil market would begin operating within the next year.

While most oil markets are traded in U.S. dollars, Iran first floated the idea of trading oil in Euros in the early 2000s during the tenure of reformist president Mohammad Khatami. It gained new life after the nationalist Mahmoud Ahmadinejad was elected in 2005.

As the fourth largest oil producer in the world, Iran has a measure of influence over international oil markets. The country ranks second for output among OPEC Countries, and controls about 5 percent of the global oil supply.

Tehran also partially controls the Persian Gulf’s Strait of Hormuz, through which much of the world’s oil supply must pass.

Iran has sought to wield its oil resources as a bargaining tool in its ongoing standoff with the West over its nuclear program.

The U.N. Security Council is considering imposing a third set of sanctions on Iran for defying a request to halt uranium enrichment. But Tehran has expressed doubt that the world body would impose sanctions on the country’s oil sector, because such a move would likely drive global oil prices higher.

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http://www.iht.com/articles/ap/2008/02/17/business/ME-FIN-Iran-Oil.php

SYDNEY (Reuters) – Rio Tinto Ltd/Plc’s (RIO.AX) rejection of a $140 billion all-share offer from BHP Billiton Ltd/Plc (BHP.AX) is likely to trigger rival bids from resource companies awash with cash from record commodity and stock prices.

A marriage of BHP (BLT.L) and Rio (RIO.L) would create the world’s biggest mining force, capable of controlling the global flow of fleet loads of iron ore, copper, coal and other commodities for industrial use.

Analysts said BHP Billiton’s approach may be just the first shot in a battle that could draw in other parties and push up the bidding for Rio above $170 billion.

A host of interested parties, from Chinese oil companies to Siberian nickel miners, have the potential to launch rival offers after massive stock market floats have brought companies excess funds, supplying the capital needed to finance a bid.

“If you put together a consortium of Chinese, they could be out there, as well as the Russians, given there’s a lot of oil money being generated,” said Shaw Stockbroking analyst John Colnan.

Global mining leader BHP said on Thursday it had approached third-ranked Rio with a 3-for-1 share offer, but Rio was quick to rebuff the offer as too low.

The BHP offer was initially pitched at a 14.4 percent premium. Rio shares gained nearly 16 percent to A$130.90 in Australian trade, while BHP fell 1.8 percent, putting Rio about 3 percent above the indicative offer price.

Rio would not say whether it had received other approaches, although analysts said the company’s broad range of operations and healthy profit outlook made it an attractive target.

The Rio board was open to other offers and a higher BHP bid, said a source familiar with the deal, who asked not to be named.

Only hours earlier, Rio had mopped up the last of the shares in Canadian aluminum maker Alcan, which it acquired for $38.1 billion after trumping an offer by Alcoa Inc. (AA.N).

Credit ratings agency Moody’s said it may put BHP’s rating under review for a possible downgrade if a formal offer is made for Rio, reflecting uncertainties about integration risk, regulatory restrictions and financial policies.

The global mining boom means both companies are generating piles of cash, with BHP Billiton expected to post 2007/08 net profit of $15.7 billion, while Rio is expected to post profit of about $7.6 billion.

At current prices, Rio trades at a forward earnings multiple of 17.6 times, and BHP at about 14.3 times.

REGULATORY CONCERNS

BHP has not said how it would address potential anti-trust issues, particularly in iron ore where the two companies command 30-35 percent of the seaborne market, say analysts. BHP and Rio mine a combined 277 million tonnes a year and are expanding rapidly. Only Brazil’s CVRD (VALE5.SA) mines more.

However, Rio’s acquisition of Australian and Canadian iron ore miner North in 2000 raised few alarms with regulators.

Given neither BHP nor Rio sells much into the highly regulated U.S. and European markets, Tim Barker of BT Financial Group said he doesn’t see any anti-trust issues.

“The scarcity and the difficulty of bringing on new projects, sourcing people, makes these sorts of consolidations attractive,” said Denis Donohue, senior portfolio manager of Suncorp Metway Investment Management, which owns shares in BHP and Rio Tinto.

Rio’s rich iron ore, coal and copper mines, as well as its ranking as the world’s top aluminum maker, would offer diversification from oil for China’s PetroChina (601857.SS), which has a market value exceeding that of Exxon Mobil Corp (XOM.N) and Royal Dutch Shell Plc (RDSa.L) combined.

“One possibility would be Chinese sovereign funds taking a blocking stake in Rio Tinto,” said FW Holst analyst Rob Craigie.

In Russia, the world’s biggest nickel miner Norilsk Nickel (GMKN.MM) has said it will look overseas for more assets after completing the largest foreign acquisition by a Russian company.

Norilsk already explores with Rio Tinto in the Russian Far East and with BHP in northwest Russia and western Siberia.

BHP, which merged with Billiton in 2001, almost went bankrupt in the late 1990s after a disastrous foray into copper mining in the United States, which raised the company’s penchant for spreading its commodity base far and wide.

Rio is also a combination of a merger, in 1997.

British-based Rio Tinto Co was formed in 1873 to mine ancient copper workings at Rio Tinto near Huelva in Spain. In Australia, Consolidated Zinc was incorporated in 1905 to treat zinc bearing mine waste from the outback.

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There has been much chatter recently about the market capitalization of Chinese stocks. It is true that PetroChina (PTR) is the first trillion dollar company; however, four of the five Shanghai Composite stocks appearing in our Top 20 list are also listed on Hong Kong’s Hang Seng index. Maybe not a hugely significant fact, but while the Shanghai Composite is considered “emerging,” the Hang Seng is considered “developed.”

http://tickersense.typepad.com/ticker_sense/2007/11/twenty-largest-.html

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————————————————————

PetroChina Surpasses Exxon as Shanghai Shares Surge
By Ying Lou

Nov. 5 (Bloomberg) — PetroChina Co. became the world’s first trillion-dollar company, surpassing Exxon Mobil Corp. as the shares started trading on the Shanghai stock exchange.

PetroChina’s Class-A shares almost tripled on their Shanghai debut, rising as high as 48.62 yuan from the sale price of 16.7 yuan. The listing gives mainland Chinese investors their first opportunity to own the stock.

China’s largest oil and gas producer has been listed since 2000 in Hong Kong where it advanced 78 percent this year as investors sought to profit from the world’s fastest-growing major economy. The Beijing-based company’s shares soared as the Hang Seng Index in Hong Kong rose 53 percent and the CSI 300 Index of shares listed on the Shanghai and Shenzhen exchanges increased 168 percent.

“Local investors might have a different risk tolerance level to global investors, so we may see PetroChina’s A-shares trading at a premium” to its Hong Kong stock, said Lei Wang, a co-manager of Thornburg International Value Fund in Santa Fe, New Mexico, which oversees $16 billion.

PetroChina reached 43.96 yuan at 11:05 a.m. in Shanghai, valuing the company at more than $1 trillion. Exxon is worth $488 billion on the New York Stock Exchange. In Hong Kong, PetroChina fell 7 percent to HK$18.20

`Sense Of Responsibility’

The Chinese oil producer trades at almost 60 times earnings in Shanghai, compared with Exxon’s valuation of 13 times. PetroChina’s market value is higher than Russia’s gross domestic product.

“I feel very excited today and also feel a very strong sense of responsibility,” Chairman Jiang Jiemin said at the Shanghai Stock Exchange. “This is PetroChina returning to our investors and the society.”

The company had 20.5 billion barrels of oil and gas reserves in 2006, compared with 22.1 billion for Irving, Texas- based Exxon, data compiled by Bloomberg show. PetroChina has been adding new reserves at an average annual rate of 5 percent for the past three years, a faster pace than Exxon, Royal Dutch Shell Plc and BP Plc, the world’s largest oil companies by sales.

The share sale, the world’s biggest this year, surpassed the 66.6 billion yuan generated by China Shenhua Energy Co. in September.

Mainland Chinese investors were until now prevented from directly buying PetroChina stock, missing out on a 15-fold surge as economic growth turned the nation into the largest oil consumer after the U.S. and as crude prices reached a record $96.24 a barrel in New York.

Demand For Shares

Investors applied for more than 3.3 trillion yuan of stock, almost 50 times the amount PetroChina sold. Chinese companies now represent five of the world’s 10 largest by market value, raising investor concerns that the market is too expensive.

Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. sold its stake in PetroChina this year, reaping an eightfold gain that contributed to a 64 percent increase in third-quarter profit for the Omaha-based company. Berkshire had 2.34 billion shares as of the end of 2006, the largest holding after state-owned China National Petroleum Corp.

Buffett said on Oct. 24 that Chinese share prices have risen too fast.

“It’s easy to be carried away in the stock market when things are going very well,” he said in the northern Chinese city of Dalian. “We at Berkshire never buy stocks when we see prices soaring.”

`Limited Upside’

Gains in PetroChina’s Class-A stock in Shanghai may have more to do with Chinese investors seeking returns from their $2.3 trillion in savings than the outlook for the company’s exploration and production operations, or its refining business, known as downstream, said Larry Grace, an oil analyst at Kim Eng Securities Co. in Hong Kong.

“Production is static with limited upside for the next three to four years,” Grace said. “As for the downstream, the price controls and overall regulatory trend limit the company’s earnings.”

China controls fuel prices to shield consumers in the world’s most-populous nation from accelerating inflation. The policy limits the ability of PetroChina and China Petroleum & Chemical Corp. to pass on the burden of higher crude oil costs.

UBS AG’s China venture, UBS Securities Co., Citic Securities Co. and China International Capital Corp. arranged PetroChina’s Shanghai share sale.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aixBdHxWY.po&refer=news

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In after-hours trade, crude climbs to new record high of $95.28 a barrel

SAN FRANCISCO (MarketWatch) — Crude-oil futures closed at a new high of $94.53 a barrel on Wednesday after U.S. crude inventories dropped surprisingly in the latest week to the lowest level in two years and the dollar lost ground on the Federal Reserve’s rate cut.

In after-hours trading, crude-oil futures hit a new record high, surging as high as $95.28 a barrel on the New York Mercantile Exchange. Crude oil for December delivery was last up $4.84, or over 5%, at $95.22 a barrel.

Earlier Wednesday during the regular trading session, crude settled up $4.15, or 4.6%, at $94.53 a barrel, the highest closing price for a front-month contract.

Futures prices of petroleum products also surged.

U.S. commercial crude oil inventories, which are inventories excluding those in the Strategic Petroleum Reserve, fell by 3.9 million barrels to 312.7 million barrels in the week ending Oct. 26, the lowest since October 2005, the Energy Information Administration said Wednesday. Analysts surveyed by Platts expected on Tuesday a build of 1.25 million barrels in stocks.

The dollar hit a record low of $1.4503 per euro after the Federal Open Market Committee, the Fed’s rate-setting arm, cut the fed funds rate by 0.25% to 4.5% on Wednesday afternoon. See The Fed.

“This is another bullish report for crude oil,” said James Williams, an economist at WTRG Economics, an energy research firm. “Since the Fed cut met expectations, this is fairly neutral. The oil stock decline, not the Fed, is ruling today’s market.”

“This market continues to trade on fear and short term news,” Williams added.

Low inventories

EIA’s data showed that out of last week’s 3.9 million barrel drop, 3.1 million barrels were from Cushing, Oklahoma, which is the delivery point for crude traded on Nymex.

“The large decline at Cushing stocks adds to the upward pressure,” said Williams.

Mexico’s oil exporting ports closures will probably affect next week’s import and inventory data, according to WTRG’s Williams.

Crude imports over the last four weeks have averaged 9.7 million barrels per day, or 481,000 barrels per day less than the same period last year, the EIA said. Last week’s imports averaged 9.4 million barrels per day, up 278,000 barrels per day from the previous week.

U.S. imports nearly 70%, or 10 million a day, crude oil. Mexico is the second largest supply country after Canada, shipping 1.66 million a day to the U.S., according to EIA.

Fierce storms in the past few weeks forced Mexico to close its main oil exporting ports in the crude-rich Gulf of Mexico, cutting off most of the country’s crude shipments to the U.S. Over the weekend, Mexico’s state-owned Petroleos Mexicanos, one of the largest crude suppliers to the U.S., halted production of 600,000 barrels a day due to inclement weather.

The impact from Mexico will “be made up in the coming weeks,” said Williams.

Fed rate cut

“The Fed cuts were pretty much as expected, but it’s more bad news for the dollar, which means oil will likely rally even more,” said Kevin Kerr, president of Kerrtrade.com and Editor of Dow Jones MarketWatch’s Global Resources Trader.

A rate cut will weaken the dollar and raise the appeal of oil as an alternative investment. A weaker dollar also undermines the value of crude for its producers since the commodity is priced in the U.S. currency, putting upward pressure on crude prices as producers move to raise prices to limit the impact of the weak dollar.

“With a weaker dollar, one cannot expect prices to decline much if at all this week,” said John Person, president of National Futures Advisory Service, a futures brokerage. In fact, he said, the $100 dollar a barrel oil target becomes more of a reality in this scenario.”

“At this point if there were any news-driven shocks to the market that would indicate a supply disruption, oil would certainly be targeted at $120 per barrel, especially in this environment,” Person added.

Drop in refinery capacity

In the same report, EIA, which is part of the Energy Department, also said refinery capacity utilization fell sharply by 0.9% to 86.2%. Analysts expected a 0.5% point increase. The utilization was at the lowest in more than seven months.

“The severe weakness in the capacity utilization number is shocking,” said Global Resources Trader’s Kerr. “If capacity falls there will be less heating oil or gasoline.”

The EIA reported that gasoline supplies rose by 1.3 million barrels to 195.1 million barrels in the latest week, down from last year’s 206.4 million, while distillate stocks, which include heading oil, diesel and jet fuel, grew by 800,000 barrels to 135.3 million barrels, down from 144.1 million of the same period in last year.

“Without a chance to see oil inventories build we are in for higher prices at the pumps and for home heating costs this winter,” said National Futures Advisory Service’s Person.

In a separate report, the American Petroleum Institute reported that crude supplies fell by 3.3 million barrels to 311 million barrels. Distillate stocks rose by 3.1 million barrels to 136.2 million barrels, while gasoline stocks fell by 800,000 barrels to 196.1 million barrels, the API said.

On Nymex, November reformulated gasoline jumped 3.7%, or 8.29 cents, to $2.3400 a gallon and November heating oil rose 3.4%, or 8.32 cents at $2.5078 a gallon.

The EIA will release data on natural gas supplies at 10:30 a.m. Eastern on Thursday. John Kilduff, an analyst at MF Global, expects an injection of 56 billion cubic feet.

December natural gas surged 4.1%, or 33.1 cents, at $8.352 per million British thermal units.

http://www.marketwatch.com/news/story/oil-closes-new-high-9453/story.aspx?guid=%7BF078CE7B%2D5277%2D4358%2D9356%2D7A049EBBAFA6%7D

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